Ban on Net tax dead till 2004

Ever since Nov. 1, when the moratorium prohibiting state governments from levying access taxes expired, senators Ron Wyden, D-Ore., and George Allen, R-Va., have been trying to make the ban permanent.

A last-minute maneuver would have added their proposal to an omnibus appropriations bill funding most of the federal government through 2004, but Wyden's office acknowledged Wednesday that their effort had failed--potentially allowing cash-strapped state governments to levy new taxes on digital subscriber line, cable modem and dial-up Internet connections.

"We don't anticipate that there will be any action this year on the Internet tax issue," Wyden spokeswoman Carol Guthrie said.

Wyden and Allen plan to renew their efforts to enact the tax ban in January.

Resistance in the Senate marks a 180-degree turn from the measure's reception in the U.S. House of Representatives. Invoking a process designed for noncontroversial legislation, the House approved a permanent ban by a voice vote Sept. 17.

To Internet service providers, this is one of the most important congressional debates of the year. Dave McClure, president of the U.S. Internet Industry Association, wrote a pointed essay called "The Five Great Lies of Internet Taxation," which accused moratorium opponents of "using filibusters, deceit and misdirection to mask their tax-and-spend agendas."

The National Governors Association and state legislators largely oppose the bill, saying the Internet does not deserve special treatment and that making the ban permanent would cost crucial tax revenues.

The debate is only limited to Internet access fees and does not affect sales taxes paid on purchases made over the Internet. In general, e-commerce retailers are required to collect sales taxes only if a buyer lives in a state where the business has a physical presence, such as an office or a retail outlet. State legislators want to change current law but are a long way from persuading Congress to do so.